Other parts of this series:
“Voluntary benefits”—protection products bought by employees through the workplace at their expense—might not (yet) be a household term, but they are catching on among US households. Voluntary benefits sales totaled $6.03 billion in 2012, an increase of 10 percent over the previous year. For employers, voluntary benefits are an easy way to enhance the company’s benefits program without adding to their cost or administrative burden. In 2012, 58 percent of employers made voluntary benefits a significant benefits strategy, up from 32 percent in 2010.
Given this scenario, it’s no surprise that some forward-thinking life insurers are turning to voluntary benefits as a strategy for capturing the underserved middle market. But, before insurers dive in to this exciting marketplace, it pays to know more about the waters.
Dynamics around employee participation
Employee participation levels vary widely within market segments and by employer. Participation is influenced by a number of factors, most notably the communication and enrollment strategy, which tends to vary by size of employer.
In the small and mid-sized employer marketplace, participation levels of 35 to 40 percent are not uncommon, driven by a personalized approach—face-to-face enrollment meetings in a group setting and the availability of one-on-one consultations later.
By contrast, for logistical reasons large employers tend to use online communications with call center support, as the most common approach to enrollment. In addition, large employers tend to limit enrollment frequency, as well as the marketing leeway given to carriers. As a result, participation typically is lower, percentage-wise, than with smaller companies. That said, the enrollment numbers are climbing dramatically.
Impact of Affordable Care Act
The Affordable Care Act (ACA) will undoubtedly stimulate the voluntary benefits marketplace, as employees add options besides healthcare coverage as part of a thoughtfully designed and tightly integrated program of employee benefits.
The ACA may drive up healthcare costs for certain employers. If that happens, those costs will almost certainly be passed on to employees in the form of higher contributions—not necessarily helpful for employees’ propensity to buy voluntary benefits. However, those additional outlays are likely to be more than balanced by the emergence and proliferation of private exchanges for healthcare as well as other employee benefits.
It’s important to note that with the passage of ACA, healthcare carriers have become more focused on voluntary benefits. They have the potential of being formidable competitors, well positioned to offer adjacency products and to leverage their share-of-wallet with benefits brokers. Healthcare companies also have pricing and bundling advantages.
Bottom line is, when it comes to voluntary benefits, the opportunity is massive but carriers will face an ultra-competitive environment. To thrive and prosper will require a whole host of new capabilities, skills and products. So, how can life insurers deliver? How can they meet the needs of the underserved middle market? Next week I’ll conclude my series by exploring the five actions that’ll put tomorrow’s most able voluntary benefits players on the path to success.
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